Claim No CFI 004/2007
THE JUDICIAL AUTHORITY OF THE DUBAI INTERNATIONAL FINANCIAL CENTRE
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
Before Justice Sir John Chadwick
ARABTEC CONSTRUCTION LLC
Claimant/Part 20 Defendant
ULTRA FUJI INTERNATIONAL LLC
Defendant/Part 20 Claimant
Hearing dates: 2, 3, 4, 5 and 6 November, 15, 16, 17 and 18 December 2008
Counsel: Mr Karim Ghaly and Mr Nabeel Ikram (instructed by and of Clyde & Co, City Tower 2, Suite 102, Sheikh Zayed Road, Dubai) for the Claimant/Part 20 Defendant
Mr Tony Maalouli and Ms Julia Musat (of ProConsult Advocates & Legal Consultants, Office 301, Commercial Tower, Grosvenor House, Sheikh Zayed Road, Dubai) for the Defendant/Part 20 Claimant
JUDGMENT OF SIR JOHN CHADWICK
2. On or about 11 July 2007 – at a time when work on site had not been completed – Arabtec purported to determine the Sub-Contract. The principal issue in these proceedings is whether it was entitled to do so. Thereafter Ultra Fuji was excluded from the Site. Arabtec engaged a replacement sub-contractor – International Elevator & Escalator Co (Daewoo – Getreba) (“IEEC”) – to enable it to complete its obligations under the Main Contract.
3. Arabtec does not pursue a claim in these proceedings to recover payments made to IEEC for completing the Sub-Contract Works. But it does claim damages to cover what are described as re-procurement costs: that is to say, the cost of identifying the further works that needed to be carried out, the cost of rectifying latent defects in Ultra Fuji’s work and the costs of re-tendering the further works. The damages sought under that head are, in aggregate, AED 397,900. The more significant elements of the monetary claim are (i) the refund of payments made to Ultra Fuji in respect of Sub-Contract Works not performed (AED 2,442,924.78) and (ii) an amount (AED 883,260) in respect of liquidated damages for delay. Taken together, the monetary claims amount to AED 3,724,084.78. There is also a claim for a declaration that Ultra Fuji is liable to indemnify Arabtec in respect of any liability which the latter may incur under the Main Contract by reason of Ultra Fuji’s breach of the Sub-Contract.
4. Ultra Fuji’s response to those claims includes a counterclaim under Part 20 of the DIFC Court Rules for payment on unpaid invoices (AED 1,658,172) with interest; and for damages (quantified at AED 60,000) in respect of equipment and tools said to have been left on the Site (and appropriated by Arabtec) when Ultra Fuji was excluded from further access.
Ultra Fuji’s obligations under the Sub-Contract
” . . . Subject to the provisions of this Clause, the Sub-Contractor shall complete the Sub-Contract Works within the Period of Completion specified in the Third Schedule.”
The Period of Completion of the Sub-Contract specified in the third schedule to the Agreement is “To comply with the Main Contract Programme (Clause 14”). Clause 14 of the Agreement (to which I shall refer in a later paragraph of this judgment) provides for the Sub-Contractor to pay liquidated damages if it fails to achieve completion of the Sub-Contract Works within the Period of Completion.
8. The Main Contract Programme required the works to be completed within 436 days from the Commencement Date: clause 43.1 of the Main Contract read with the Appendix to Tender. Given that the Commencement Date was 20 September 2005 – as provided in a Letter of Intent between DIFC and Arabtec dated 6 September 2005 – the effect of those linked provisions was that, under the terms of the Sub-Contract, the Sub-Contract Works were to be completed by 29 November 2006. But, in the events which happened, on 26 November 2006, an extension of time (32 days) was granted under the Main Contract: the effect was to extend the Period of Completion in respect of the Sub-Contract Works to 31 December 2006.
9. Clause 6(b) of the Agreement provides that if the Sub-Contractor shall be delayed in the execution of the Sub-Contract Works by any variation of those works, or by any breach by the Contractor of the Sub-Contract, the Sub-Contractor should be entitled to such extension of the Period for Completion “as may in all the circumstances be fair and reasonable”. But that right to an extension was subject to the provisions of clause 10(e):
“10(e) NOTICES, CLAIMS EXTENSIONS
If for any reason whatsoever beyond the Sub-Contractor’s control, which could not have been reasonably foreseen or avoided, an extension of time is needed . . . then the Sub-Contractor must give full details together with the relevant supporting documentation in such time as to enable the Main Contractor to comply with the relevant notices and requirements of the Main Contract . . . provided always that nothing in this clause shall prevent the Sub-Contractor claiming for delays in the execution of the sub-contract works solely by the act or default of the Main Contractor on the ground that the Main Contractor has no remedy against the Employer for such delay.”
“14. LIQUIDATED AND ASCERTAINED DAMAGES FOR DELAY(a) If the Sub-Contractor shall fail to achieve completion of the Sub-Contract Works as prescribed by the Third Schedule hereof, then the Sub-Contractor shall pay to the Contractor the sum stated in Sub-Clause (b) below as Liquidated Damages for every week or part of a day, which shall elapse between the time stated in the Third Schedule hereof for the completion and the date of certified completion. . . .”(b) Penalties for failure to complete by the time prescribed by the Third Schedule hereof shall be at the rate as contained in the Main Contract with a limit of 10% (ten) Subcontract amount. The rate as outlined in the Main Contract does not preclude the Main Contractor from charging other costs which may be incurred due to the default of the Sub-Contractor.”
The Main Contract rate was AED 350,000 per day: clause 47.1 of the Main Contract, read with the Appendix to Tender. But (i) that cannot stand with the rate specified in the third schedule to the Agreement (AED 40,000 per day) and the latter must prevail and (ii) in any event the amount was capped at AED 883,260: that being 10% of the reduced sub-contract price.
11. On the basis that the Period of Completion ended on 31 December 2006, liquidated damages at the rate of AED 40,000 per day in respect of the time (191 days) which elapsed between that date and 11 July 2007 (the date on which Arabtec purported to terminate the Sub-Contract) would amount to AED 7.64 million. Arabtec limits its claim under this head to the capped amount, AED 883,260.
Ultra Fuji’s right to payment under the Sub-Contract
13. The third schedule to the Agreement provided that the progress payments would be made “within seven (7) days of receiving any corresponding payment from the client [DIFC] which includes a sum in respect of the contract works”. That provision reflects clause 11(b):
And both clause 11(b) and the provision in the third schedule must be read with clause 11(a):
14. The important feature of the scheme for payment under the Sub-Contract, in the present context, is that that the Sub-Contractor’s right to be paid a progress payment arises – and arises only – after the Contractor has received a payment under the Main Contract which includes a sum in respect of the Sub-Contract Works. It is pertinent, therefore, to have in mind the provisions in clause 60 of the Main Contract, which provide (i), at clause 60.1, for the submission, by the Contractor to the Engineer retained by the employer (DIFC), at the end of each month, of a statement showing the amounts to which the Contractor considers itself entitled in respect of the works executed, (ii), at clause 60.2, for the certification by the Engineer, within 28 days of receiving such a statement from the Contractor, of the amount of payment to the Contractor which he considers due and payable and (iii), at clause 60.10, for payment by the employer to the Contractor, within 45 days of delivery of the Engineer’s certificate, of the amount certified. The effect of those provisions is that it may be expected that some time (perhaps as much as two and a half to three months) will elapse between the date when the Sub-Contractor submits to the Contractor a monthly statement of the value of work done under the Sub-Contract (under clause 11(a) of the Sub-Contract) and the date when the Sub-Contractor is entitled to a progress payment in respect of that work (under clause 11(b) of the Sub-Contract).
15. Arabtec’s claim to the refund of payments made to Ultra Fuji in respect of Sub-Contract works not performed is a claim to the difference (AED 2,442,924.78) between the payments actually made to Ultra Fuji under the Sub-Contract (AED 7,435,827.93) and the amount to which (it is said) Ultra Fuji was entitled under the terms of the Sub-Contract (AED 4,992,903.15) at the date of termination. The latter amount is derived from a certificate issued by the Engineer in September 2007.
16. Ultra Fuji’s claim to payment on unpaid invoices (AED 1,658,172) is a claim to the difference between (i) the aggregate of the amounts invoiced by Ultra Fuji (together, AED 8,159,314.38), the retention monies (AED 896,146.04) and an adjustment described as “Balance to Invoice after final handing over” (AED 38,539.58) and (ii) payments which Ultra Fuji accepts were received under the Sub-Contract (AED 7,435,827.93). The amounts invoiced include five progress payments (together, AED 1,990,314.37) and a variation cost in respect of additional guide rails and steel rope (AED 94,000.00). It can be seen that the amount of the payments actually made to Ultra Fuji under the Sub-Contract (AED 7,435,827.93) is not in dispute.
The contractual provisions for termination
17. The Sub-Contract contained its own provisions for termination by Arabtec (as Contractor) if Ultra Fuji (as Sub-Contractor) failed to perform. Clause 12 of the Agreement was in these terms:
“12. If the Subcontractor(a) fails to proceed with the Subcontract Works with due diligence after being required in writing so to do by the Contractor; or(b) fails to execute the Subcontract Works or to perform his other obligations in accordance with the Subcontract after being required in writing so to do by the Contractor; or(c) refuses or neglects to remove defective materials or make good defective work after being directed so to do by the Contractor; or(d) . . .
then in any such event and without prejudice to any other rights or remedies, the Contractor may give written notice of such default or failure to the Subcontractor.
Thereafter should the Subcontractor not take effective action within 7 (seven) days of receipt of such notice to remedy such default or failure then the Contractor may, by written notice to the Subcontractor forthwith determine the Subcontractor’s employment under this Subcontract and thereupon the Contractor may take possession of all materials, Constructional Plant and other things whatsoever brought onto the Site by the Subcontractor and may use them for the purpose of executing and completing the Subcontract Works and may, if he thinks fit, sell all or any of them and apply the proceeds in or towards the satisfaction of monies incurred by him as a result of the Subcontractor’s breach.”
18. It is important to appreciate that those provisions require four distinct steps: (i) a notice (“notice to perform”) from the Contractor requiring the Sub-Contractor to proceed with due diligence, or to execute the Sub-Contract Works (or to perform other obligations) or (as the case may be) to remove defective materials or make good defective work under one or other of paragraphs (a), (b) or (c); (ii) a notice from the Contractor of failure or refusal to proceed or perform (“notice of default”); (iii) failure by the Sub-Contractor within seven days to take effective action to remedy the failure or default identified in the notice of default; and (iv) notice of termination from the Contractor. The notice to perform, notice of default and notice of termination must each be in writing.
Termination under the DIFC Contract Law
“80. Cure by non-performing party
(1) The non-performing party may, at its own expense, cure any non-performance, provided that:(a) without undue delay, it gives notice indicating the proposed manner and timing of the cure;(b) cure is appropriate in the circumstances;(c) the aggrieved party has no legitimate interest in refusing cure; and(d) cure is effected promptly.(2) The right to cure is not precluded by notice of termination.(3) Upon effective notice of cure, rights of the aggrieved party that are inconsistent with the non-performing party’s performance are suspended until the time for cure has expired.(4) The aggrieved party may withhold performance pending cure.(5) Notwithstanding cure, the aggrieved party retains the right to claim damages for delay as well as for any harm caused or not prevented by the cure.”
It is important, in the context of the present proceedings, to note: (i) that the “right to cure” arises if, but only if, the non-performing party has given notice indicating the proposed manner and timing of the cure (Article 80(1)(a)); (ii) that the right to cure is not precluded by notice of termination (Article 80(2)); and (iii) that, if effective notice of cure has been given, the rights of the aggrieved party that are inconsistent with the non-performing party’s performance – that is to say, rights which include the right of the aggrieved party to terminate the contract – are suspended until the time for cure has expired (Article 80(5)).
21. Part 8 of the DIFC Contract Law includes provisions under which a contract may be terminated by one party unilaterally:
“86. Right to terminate the contract(1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance.
(2) In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether:(a) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract;(b) strict compliance with the obligation which has not been performed is of essence under the contract;(c) the non-performance is intentional or reckless;(d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance.(3) In the case of delay the aggrieved party may also terminate the contract if the other party fails to perform before the time allowed under Article 81 has expired.
. . .
88. Anticipatory non-performance
Where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract.”
22. It was submitted on behalf of Ultra Fuji that the right to terminate under Articles 86 and 88 of the DIFC Contract Law was inconsistent with – and so must be taken to have been excluded by – the provisions for termination of the Sub-Contract contained in clause 12 of the Agreement. I reject that submission. First, clause 12 of the Agreement provides, in terms, that the right of the Contractor to give notice of default – which is the pre-condition to the right to give a notice of termination, if effective action to remedy the default is not taken within seven days – is “without prejudice to any other rights or remedies”. It is, I think, plain that the Contractor is entitled to choose, in an appropriate case, to exercise its right to terminate under Article 86 (or Article 88) of the Contract Law rather than to give a notice of default leading to a right to terminate (if effective action is not taken) under clause 12. Second, it is important to appreciate that a right to terminate under clause 12 of the Agreement may arise in cases where there is no right to terminate under Article 86 (or Article 88) of the Contract Law. The right to terminate under those articles arises and is exercisable only in cases where the failure (or threatened failure) to perform an obligation amounts (or would amount) to “a fundamental non-performance” in the sense in which that expression is to be understood in the light of Article 86(2). The right to terminate under clause 12 of the Agreement, if effective action is not taken within seven days of a notice of default, can be exercised whether or not the non-performance (failure to proceed with due diligence, failure to execute the Sub-Contract Works or neglect in making good defective works, as the case may be) which is the subject of the notice of default is a “fundamental non-performance”. Conversely, the right to terminate under Article 86 (or under Article 88) may be exercisable in cases where there is no right to terminate under clause 12 of the Agreement; for example, in a case where there has been no opportunity for the Contractor to give a notice to perform under clause 12. On a true analysis the respective rights under clause 12 of the Agreement and Article 86 of the Contract Law are not inconsistent: they are complementary.
23. The right of a party to terminate the contract is exercised by notice to the other party (Article 87(1)). If performance has been offered late or otherwise does not conform to the contract the aggrieved party will lose its right to terminate the contract unless it gives notice to the other party within a reasonable time after it has or ought to have become aware of the non-conforming performance (Article 87(2)). Termination of the contract releases both parties from their obligation to effect and to receive future performance (Article 89(1)). Termination does not preclude a claim for damages for non-performance (Article 89(2)).
The Sub-Contract Works
“the engineering, design, fabrication, manufacture, shipment, installation and inspection and testing of the following• 33 low rise/apartment machine room-less traction lifts• 3 shuttle machine room-less traction lifts• 2 goods machine room-less traction lifts• 1 pair of escalators.”
In the context of these proceedings it is pertinent to have in mind the following paragraphs in the specification. First, under
“General Provisions”:“10 CONSTRUCTION USE OF LIFTS10.1 GENERAL10.1.1 Two lifts per Building shall be made available for construction hoisting10.1.2 Provide all necessary materials, labour and technical services to complete the construction use lifts in compliance withthe programme. This shall include:10.1.2.1 Expedited completion of the lift. . . .”“16 PROJECT COMPLETION AND HANDOVER TO THE EMPOYER
16.1 TESTING AND COMMISSIONING
16.1.1 Carry out comprehensive testing and commissioning of the complete installation. . . .16.1.2 Allow for testing and commissioning for 2 no. lifts in each building to be used as builder’s lifts. One of these lifts shall be the car equipped with front and rear entrances, the other shall be the lift that services the penthouse levels. . . . These lifts are to be retested and commissioned prior to handover.”
Second, under “Machine Room-Less Traction Lifts – General -Products”:
“8. OPERATIONS AND CONTROLS8.1 Provide each lift with operation and control systems as noted herein. . . .
8.2 Group supervisory operation and signal control equipment shall consist of a computer controlled dispatching system, designed to efficiently dispatch, direct and assign lifts to hall calls on a basis of a variety of variables, including waiting time, priority floor, main lobby, peak operation.”
26. It can be seen that the specification provided for the supply and installation of 38 lifts and two escalators. The lifts were to be installed in the ten buildings (GV1 to GV10) which were to be erected by Arabtec in carrying out the Gate Village project under the Main Contract. Particulars were set out in Ultra Fuji’s letter of 1 October 2005. In summary, buildings GV1, GV3, GV4, GV6 and GV8 were each to have three cores (and so three lifts), buildings GV2, GV7 and GV10 were each to have four cores, building GV9 was to have five cores (one of which was to be a goods or service lift) and building GV5 was to have six cores (one of which was to be a goods or service lift). The letter of 1 October 2005 included the following (amongst other) terms:
“3) Works not included in our scope of work(a) Entire civil work including chipping, grouting, finishing, painting etc.. . .(c) Scaffolding to Erectors requirement in the lift shaft.. . .(g) Temporary electricity near the elevator shaft for installation and in the machine room for testing and commissioning of the elevators.
. . .
6) Installation. . .(b) The elevator contractor shall provide the site with enough members of skilled workers and technicians to be able to finish the installation in good way and on the fixed date of completion of elevators
7) Handing over and Testing Testing and inspection for handing over will be carried out on the lift contractor expense by a specialist office as “BUREAU VERITAS” in U.A.E. or as directed by the consultant/Contractor at the present of the consultant/contractor and owner representative.
Delivery As per Site schedule in Two Shipment
Building 7,8,9,10 & 2 Escalators
Building 1 : 120 Days Building 2 : 120 Days Building 3 : 120 Days Building 4 : 135 Days Building 5 : 140 Days Building 6 : 135 Days Building 7 : 135 Days Building 8 : 135 Days Building 9 : 135 Days Building 10 : 135 Days Escalators : 45 Days”
In the letter of 1 October 2005 Ultra Fuji tendered at a price of AED 9.5 million. The letter of 8 October 2005, which followed a meeting on that day, reduced that price to AED 9 million; but made no material alterations to the scope of the sub-contractor’s work as defined in the earlier letter.
27. The revised tender was accepted by Arabtec in its letter of intent dated 12 October 2005. That letter contained Terms and Conditions which included (amongst others):
“A All terms of the sub-contract will be back to back with the Main Contract.
. . .
. . .
The allegations of non-performance
28. The allegations of non-performance under the Sub-Contract are set out at paragraph 10 of Arabtec’s Re-amended Particulars of Claim:
Particulars are given under ten heads:
10.2 Failure to install lift and escalator machinery of the standard and in the condition required by the Subcontract;
29. Paragraph 11A: On 6 November 2006 Mr Mohammed Nada, Arabtec’s senior construction manager, wrote to Ultra Fuji – for the attention of Mr Sami Ibrahim Semaan, Vice Chairman and Managing Director – in these terms:
“I regret to inform you that, even after repeated requests and reminders to you and your site representatives, the incidence of safety rule violations and unsafe practices by your operatives on site is increasing and in order to control the situation your attention is brought to the following points.1. Some of the operatives are not wearing the mandatory P.P.E’s (Safety Helmet, Safety Shoes and Coverall) and moving on site.2. While working in lift shaft, effective use of safety harness is compulsory, and it is not followed by all regularly.3. Use of safety belt (waist type) is not permitted. Full body safety harness is the approved one and some of them are still using safety belt. Remove all safety belts from site.4. Smoking is prohibited on site except in the smoking area at Level -B2. We notice that most of your people are smoking in your areas of working by hiding.5. Lift shaft barriers are removed by your people while enter into the scaffolding, in different levels and not placed back after work. This is a very serious safety issue in most of the areas wherever you work.6. Safety requirements during welding are not followed, making the situation for a Fire at anytime. Timber works done by other sub-contractors are not protected carefully and damage the same by the out coming sparks.
You are requested to take the necessary steps at once to bring the situation under control, as the present level of your safety standards are not acceptable.
If you fail to up-grade the current level of safety practices and anybody is found violating the site safety rules, we will be applying our penalty procedures for sub-contractors and the fine will be deducted from your bill.”
There was no letter from Ultra Fuji in response to that letter: the allegations of safety rule violations and unsafe practices were not challenged at the time.
30. Paragraph 11B: On 13 November 2006, Mr Nada wrote again. He informed Mr Semaan that there had been a fire in the lift shaft of building GV4 on the previous day (12 November 2006). As he said “On investigation it was [clear] that none of the safety requirements during welding in the lift shafts were followed by your people and the sparks fell down to the planks in the scaffolding at level -02 resulting in a fire”. Evidence to that effect was given by Mr Gary Hansard (Arabtec’s Project Co-ordinator for the Gate Village Project). Mr Semaan accepted that there had been a fire.
31. Paragraph 11C: On 19 November 2006 Mr Nada wrote again to inform Mr Semaan that Ultra Fuji’s labourers were still smoking in their work areas. The letter includes these passages:
“As this attitude of all your workers (Egyptians) has become a threat to the safety of all other people working in this project, we can not make any compromise in this subject other than the required effective steps from your side to stop this unsafe practice by any means.
. . .
Expecting the necessary action at the earliest.”
Mr Semaan’s response, in a fax to Mr Nada dated 20 November 2006 was that Ultra Fuji had “already instructed our staff not to smoke on prohibited areas except the smoking area at level-B2 and to stop this unsafe practices”. He went on:
“We already instructed our Site Engineers to check all our staff, whether they are carrying cigarettes and lighters with them on work places, and if anyone is caught with above, to penalize them seriously.”
In evidence Mr Semaan told the Court that his work force were told that smoking must be restricted to the designated smoking areas: but that some did not properly understand the smoking restrictions and that some may not have done what they were told. As he put it: “Not all of those who smoked could be stopped”.
32. On 21 February 2007 Mr Nada wrote again to complain of safety violations. He listed the following: (1) one of the operatives was found in the lift shaft scaffolding without wearing Safety Harness; (2) one grinder without guard, with broken socket and damaged cable was found in the same area; and (3) live bare electric wires were found directly inserted in the socket. He enclosed photographs which show the matters described under (2) and (3). His letter went on:
“Even though such instances were brought into your notice before also so many times, based upon your assurance that necessary steps will be taken to stop such unsafe practices from your operatives, we are still concerned with the continuing violations in most of the areas. Apart from your recent assurance about the handling of your jobs in this project, professionally and efficiently, no improvements are observed rather than continuing the previous standard.
Once again I would like to remind you about the necessity to follow good safety practices by your all operatives and the timely follow up by your site staff to avoid an accident or dangerous occurrence on site.”
Mr Semaan accepted in evidence that the photographs showed practices which were “totally wrong”: he could not remember replying to the letter of 21 February 2007: he could not say whether the complaints in the letter were based on fact.
33. Mr Nada did not give evidence at the trial. But Mr Hansard confirmed that the complaints made in the letters of 6, 13 and 19 November 2006 and 21 February 2007 were, indeed, based on fact. I accept that evidence. Further, I can see no reason why those letters should not be treated as evidence of the facts which they describe. In so far as it is necessary to do so – having regard to the absence of any claim to damages in respect of the breach alleged – I find that there were repeated violations of site safety rules.
34. Paragraph 11D: On 14 April 2007 Mr Hansard wrote to remind Mr Semaan that it had been agreed at a meeting with DIFC on 11 April 2007 that Ultra Fuji would provide an updated lift installation programme by 9.00 am on that day. He observed that it was disappointing to note that that had not happened. The letter went on:
“It was made very clear at the DIFC meeting that the programme is a high priority item, and that it must provide handover dates for the initial single lift in each building and all the lifts in each building of Gate Village.
You are instructed, to provide us with the revised programme latest by our next scheduled meeting which is at 9.00 am on Sunday, 15th April, 07 at the Gate Village site.”
In response to that instruction, Ultra Fuji provided, on 15 April 2007, a document described as a “Lift Installation Completion Schedule” which comprised the following table:
One Lift operating
|29 Apr||23 Apr||15 Apr||25 Apr||29 Apr||10 Apr||27 Apr||29 Apr||1 May||3 May|
|1 Jun||2 Jun||3 Jun||4 Jun||5 Jun||8 Jun||1 Jul||2 Jul||3 Jul||4 Jul|
[Note: all dates are 2007]
On receipt of that schedule APP International (Project Manager for DIFC) wrote to Arabtec expressing concern as to the ability of Arabtec/Ultra Fuji to meet those dates. It was said:
“To date no substantiation has been provided as to how the proposed Ultra Fuji Lift Completion dates are going to be achieved, and as we have discussed, it is our concern that Ultra Fuji are providing dates to ‘buy themselves time’ without having an appropriate management strategy or workforce in place to achieve the proposed dates.
. . .
We confirm the direction of DIFC that Arabtec is required to adopt all means necessary to mitigate the existing delays to the lift installation by immediately addressing the management and workforce shortfalls of Ultra Fuji.”
35. Paragraph 11E: On 24 May 2007 one lift in building GV10 was handed over to Arabtec for trial operation. On 28 May and 31 May 2007 Mr Nada wrote to Mr Semaan about the performance of that lift. To put those letters in context it is convenient to refer, first, to a letter of 23 May 2007 from APP International to Arabtec. APP International wrote:
“Through out numerous Programme and Progress meetings Ultra Fuji have advised completion dates then continually failed to meet those dates. As you are aware the lack of progress on the Lifts and Escalator is delaying follow on trades as well as affecting client operation and Tenant Fit out of the buildings.
There is now very little confidence that Ultra Fuji will be able to complete the project.
As well as the lack of progress a major interface issue has been identified between the lifts and the base building systems. The lifts have also been installed as individual lifts and there is no grouping in place. These issues are potentially further delays to the project.
Please identify how Arabtec are addressing the lack of progress and interface issues.”
In his letter of 28 May 2007, Mr Nada noted that Arabtec had started to use the lift in building GV10 on 26 May 2007. He went on:
“But I regret to inform you that we can not use the lift due to the continuous break down from the first day onwards and even if your site team was informed about this, till now they could not rectify the problems and put the lift into operation. The details of break down are given below for your information.1. On 26-05-07, the lift was under break down between 7.30 am to 9.00 am and 12.30 pm to 3.00 pm. At 5.50 pm, again happened break down while coming from Level-09 and it was very difficult for us to evacuate the people form the car.2. On 27-05-07 the break down continued and after repair the lift was said to be operational at 11.00 am. But during [trial] run again break down at 11.15 am and still now the lift is not ready for use.
In this circumstance, I would like to highlight that we cannot accept any lift in such an unreliable condition and you have to completely assure that the lift is safe and reliable for use before handing over to us rather than handing over for name sake.”
On 31 May 2007 Mr Nada wrote again. The letter (which is the document referred to in paragraph 11E of the Re-amended Particulars of Claim) was in these terms:
“With reference to our letter . . . dated 28 May 2007, about the performance of the Lift in Building GV-10, I would like to inform you again that, we could not use the lift so far as the lift was continuously under break down and the details of which are given below.1. The status on 26-05-07 and 27-05-07 were summarized in the letter . . . dated 28th May 2007.2. Followed by previous day break down, on 28-05-07, the lift was said to be ready for operation at 2.30 pm But during trial run again faced break down at 4.00 pm.3. Again followed by the 2 days continuous break down, on 29-05-07 after doing the repair you said the lift was ready at 10.00 am. But during trial run again happened break down at 11.00 am.4. On 30-05-07 the condition was the same. As before, the lift was said to be ready at 4.45 pm and during our trial run it failed again at 5.15 pm.
In this circumstance, as you can not find out the root cause and make the lift in an operational stage safe in all aspects, we cannot wait any more with your [trial] and error trouble shooting method. So we are hereby returning the lift in building GV-10 to you and kindly let us know the progress and ensure the reliability and safety of the lift before handing over again.”
There was no written response to that letter. In his evidence Mr Semaan accepted that the lift in building GV10 had broken down on the day after it had been handed over – and that it broke down frequently – but (as he said) he could not remember that it had broken down every day.
36. Paragraph 11F: On 21 June 2007 Mr Raja Hani Ghanma (Arabtec’s Project Director) wrote to Mr Semaan in these terms:
“As you are aware, Gate Village complex started to be occupied by the tenants. DIFC Management needs to have all lifts operational at all village buildings during the months of June, July, and August.
Buildings GV04, GV05 and GV06 should have all lifts working on 30th of June, 2007 as testing and commissioning will be done on 30th of June, 2007.
Lifts at buildings GV01, GV02, GV03, GV07, GV08, GV10 should be ready for test and inspection on 7th of July, 2007. Lifts of buildings GV09 should be ready on 30th of August.
You are requested to follow this priority sequence and handing over schedule without tolerance. Escalators at building GV08 should be in operational condition on 7th of July, read for testing and conditioning.
Your written affirmation to achieve the above target dates is urgent. Inspection and test operations will be arranged accordingly.”
The confirmation sought was not forthcoming: there was no written response from Ultra Fuji to that letter of 21 June 2007. But it is pertinent to note that, in a letter to Mr Raja Ghanma dated 24 June 2006, Mr Semaan asked for the release of (i) AED 20,000 per lift (total AED 200,000) “against the handing over of 10 No. lifts” and (ii) AED 94,000 as a variation cost “against the Delivery of Guiderails and Steel ropes.” The letter went on:
“Please note that we are in a critical situation and we hope you can arrange for the above payments as soon as possible”.
37. Paragraph 11G: On 26 June 2007 Mr Nada wrote to Mr Semaan to complain of repeated breakdowns in respect of two lifts which had been handed over:
“I regret to inform you that, even if you handed over the lifts, GV-07(1) and GV-10(2) to us for trial operation on 04-06-07 & 18-06-07 respectively, due to the frequent and repeated break downs, we could not use these lifts continuously so far. Every time your people are attending the break downs, but they could not assure a smooth and continuous operation of these lifts till now.
I would like to also inform you that, during the time of last breakdown, the passengers were trapped in a very critical situation and it was so difficult for us to evacuate all of them from the car. As we are more concerned about the safety of all people, we have decided not to use these lifts any more unless these are tested and certified by a competent third party, after your repair.
In these circumstances we are hereby returning the lifts, GV-07(1) & GV-10(2), to you for the necessary action.”
Mr Semaan responded to that letter on the same day. He asserted that the repeated breakdowns in respect of lifts GV-07(1) and GV-10(2) were due to misuse:
“With reference to your fax . . . dated 26.06.2007, please note that Lifts GV-07(1) and GV-10(2) had repeated breakdowns due to misuse. Please be reminded that these lifts are Passenger Lifts and not Hoistway Lifts.
Our people had attended all the necessary means to keep the lifts functioning but then, as you know, the continuous misuse of these lifts are beyond our control.
We therefore advise you to use the lifts properly to avoid breakdowns.”
He explained, in the course of his evidence, that the misuse to which he referred was (as he said) overloading the lifts with building materials and passengers. It is important to keep in mind that the specification of the Subcontract Works required two lifts in each building to be available for construction use prior to completion of the project.
38. Paragraph 11H: Arabtec relies, in this paragraph of its Re-amended Particulars of Claim, on complaints made by DIFC’s Engineer (Hopkins Architects) in letters dated respectively 9 November 2006, 23 November 2006, 8 March 2007, 21 May 2007 and 17 July 2007. The letters are addressed to Mr Raja Ghanma.
(1) On 9 November 2006, following an inspection by DIFC’s specialist lift consultants, Semaan & Soberman, Hopkins wrote to complain of corroded equipment:
“All of the equipment is either very badly soiled at best to badly corroded at worse (See attached pictures). Our observation is that the equipment has been sent sea freight, on deck and it has been subject to sea water contamination. Taken the condition of the equipment, we are unable to accept the products currently delivered to site and recommend that replacement components be obtained and we will not consider an on-site repair as a satisfactory method of resolving the problem.
. . .”
(2) On 23 November 2006, following an inspection on behalf of DIFC’s MEP Engineer, Hyder Consulting Middle East Limited, Hopkins wrote again, enclosing a letter dated 22 November 2006 which it had received from Hyder. That letter (of which only a poor copy has been made available to the Court) contained the following observations:
“There are numerous aspects to the installation that are causing us concern. These are highlighted in the following sections:
Delivery of Equipment The machines delivered to site were inspected both in their boxes and after being unpacked. The condition of the equipment demonstrated a high level of corrosion which we believe was caused by seawater contamination. The most probable cause being the equipment sent via sea freight, [loaded] on deck, and not properly protected.
Some of this equipment has been cleaned on site without an approved method statement in place and some equipment actually installed, for example in GV09.
The method statement submitted by Ultra Fuji has not been approved nor is it endorsed by the original equipment manufacturer. The extent of the repair has been limited to the external covers casings and roller sheaves, and comprises rubbing down with WD40 followed by a paint [application].
The internal condition of the equipment components has not been determined and no method of checking has been offered. As far as we know, no stripping down of the equipment by the contractor has taken place prior to the equipment being installed.
Consequently we will not know if the machines are in suitable working order until the equipment [is energized] and tested. Any subsequent repair or replacement at this point will cause considerable disruption to the building occupants.
. . .
Site Personnel We have found during our site inspections that unqualified and unskilled labour is being used to set out and install the equipment within the lift shafts. We have also been advised that Arabtec labour is also being used to install equipment.
This is leading to incorrect methods of installation being carried out, and even when our inspectors explained the correct method, the site operative failed to understand and implement the procedure.
Overall this is of grave concern and we question what QA/QC procedures Arabtec are using to [monitor] and control their subcontractors, and to ensure a safe and appropriate level equipment being installed on site.
Furthermore, we are most disappointed with the performance demonstrated by Ultra Fuji and demand that Arabtec take immediate and resolute action to address this situation. As a minimum we expect the following steps be considered:1. Original Equipment Manufacturers approval be obtained by Ultra Fuji for the on-site equipment repairs. Failing this replacement machines be provided.
2. . . .
3. All non-skilled and non-qualified personnel working on the lift installation be removed form site and prohibited from re-entry. CV of all proposed Ultra Fuji site personnel be submitted for consideration.
4. . . .”
When sending a copy of that letter to Arabtec, Hopkins wrote:
“The observations made during [Hyder’s] inspection are alarming and warrants immediate action”.
There is no evidence (and it is not alleged) that copies of those letters dated 22 and 23 November 2006 were sent by Arabtec to Ultra Fuji; but (as I explain in a later paragraph of this judgment) it is clear that Ultra Fuji was asked to provide evidence of that the manufacturer of the equipment approved the action (method statement) adopted in relation to the soiled and corroded lift equipment.
(3) On 8 March 2007 Hopkins wrote, enclosing a letter of the same date from Hyder which raised concerns in respect of the installation of escalators. The letter from Hyder contained these paragraphs:
“We write to advise that our specialist lift consultants have made observations during the introduction of the escalators that suggest M/s Ultra Fuji do not have the sufficient level of skill that is necessary to rebuild the machines which are delivered to site in three pieces with all glass and cladding removed.
They have further reported that it is also clear from the way that the escalators have been handled that not only do M/s Ultra Fuji not have the skills/knowledge locally to install the escalators, but they do not have the correct tools, equipment and most importantly the lifting A frames.
. . .
Considering the above we request that Ultra Fuji be instructed to submit on an urgent basis a full installation method statement for approval with details of safety procedures, labour skills and experience. Until we have received reviewed and approved this method statement we advise that the installation in progress be closely monitored and a stop work notice issued should they continue with the poor installation methods.”
Copies of those letters of 8 March 2007 were sent by Arabtec to Ultra Fuji. On 12 March 2007 Mr Semaan’s response was to the effect that he did not accept Hyder’s criticism: he wrote:
“. . . we were surprised about their comment that we do not have sufficient level of skill that is necessary for the works. Please note that our Engineers are highly qualified and with average of 20 years of experiences that would consider us as fully fitted and qualified for the works.”
(4) The minutes of a Progress Meeting on 21 May 2007, attended by representatives of DIFC, Hopkins, Hyder and Arabtec but not by any representative of Ultra Fuji, record (at item 1.6) under the heading “Lift Progress” that:
“Ultra Fuji consistently failing to meet target dates, require focused management from ATC.”
Mr Semaan accepted in evidence that he saw a copy of those minutes. Following that meeting, Mr Raja Ghanma sent to Mr Semaan a copy of the letter dated 23 May 2007 from APP International to which I have referred earlier in this judgment. That letter indicated that APP International had lost confidence that Ultra Fuji would be able to complete the project.
(5) The letter of 17 July 2007 (on which Arabtec relies in paragraph 11H of its re-amended particulars of claim) was sent after Arabtec had purported to terminate the Sub-Contract. The letter raises a number of concerns in relation to the escalators installed at building GV8. It is, I think, of little or no relevance to the matters which I need to decide in these proceedings.
39. The evidence given by Mr Hansard at the trial provides confirmation of the matters described in the letters of 14 April, 23, 28 and 31 May and 26 June 2007. Further, I can see no reason why those letters should not be treated as evidence of the facts which they describe. Further confirmation is found in the Lift Progress Updates and Daily Lift Performance Records to which I refer in the next section of this judgment. In so far as the evidence called on behalf of Ultra Fuji – that is to say, the evidence of Mr Semaan, Mr George Layous and Mr Gamal Mahfoz – is inconsistent with the evidence of Mr Hansard and the letters themselves, I reject their evidence. They were not, in my view, witnesses on whose evidence I could safely rely in matters which involved criticism of Ultra Fuji.
40. I accept the letters of 9 and 23 November 2006 from DIFC’s Engineer as evidence of the state of the lift equipment which Ultra Fuji installed at the site. That evidence was confirmed by Mr Hansard. I do not accept Mr Semaan’s evidence that the corrosion was removed by a method which had been approved by the original manufacturer. It is clear from a fax message sent by Mr Semaan to the manufacturer (Ningbo Riling Engineering Co Ltd) on 28 November 2008 and the response to that fax (i) that the manufacturer’s certificate dated 28 November 2008 (on which Ultra Fuji sought to rely) was obtained after the remedial work had been done and (ii) that it was in a form dictated by Mr Semaan himself. Further, substantial doubt is cast upon the standing of the certificate as a credible approval by an independent manufacturer in the circumstances that it is signed in the name of “Ningbo Riling Engineering Co Ltd (Ultra Fuji China)”, that it is on paper which bears the Ultra Fuji logo and the address “Ningbo Riling (Ultra Fuji) CO., LTD” and that, in Ultra Fuji’s letter of 1 October 2005 (one of the Sub-Contract documents) and in the third schedule to the Agreement of 19 December 2005, the original manufacturer is described as Ultra Fuji’s “main factory in China”. In so far as it is necessary to do so – having regard, again, to the absence of any claim to damages in respect of the breach alleged – I find that there was a failure to install lift equipment in the condition required by the Sub-Contract.
41. I accept the letters of 22 November 2006 and 8 March 2006 from DIFC’s MEP Engineer as evidence of a lack of skill amongst the Ultra Fuji workers on site. But that is not included in the Re-amended Particulars of Claim as an allegation of non-performance on which Arabtec relies: and (if it were) there is no claim to damages in respect of any breach. So it is unnecessary to make any finding of fact on that matter. Nor, in the absence of any claims to damages in respect of those matters, is it necessary to make findings of fact on the matters described in paragraphs 10.6, 10.7, 10.8 and 10.9: failure to provide suitable lift control panels, failure to provide co-axial cable for CC-TV cameras, failure to provide interface systems and failure to accurately set out and appropriately install the escalators. The evidence as to those matters was confused and contradictory: it provides no safe basis on which to make such findings.
42. My findings as to the allegations of non-performance described in paragraphs 10.3, 10.4, 10.5 and 10.10 – failure to provide accurate programmes for carrying out the Sub-Contract works, failure to comply with programme requirements under the Sub-Contract, delay in carrying out the programming of each lift and repeated handing over defective and/or inoperative lifts – appear in subsequent paragraphs of this judgment. It is sufficient to say, at this stage, that I find those allegations to be established.
The progress of the Sub-Contract Works
44. Lift Progress Update reports: The progress recorded by the Lift Progress Updates may be summarized as follows:
(12) The Lifts Progress Update up to 27 May 2007 showed changes in the Stage 1 dates for buildings GV1 and GV7 to GV10; and changes in the Stage 2 dates for buildings GV1 to GV10: in particular the Stage 2 date (Lifts Operational) for all lifts had become 4 July 2007. The Stage 1 dates shown were:
One Lift Operating
|23 May||23 Apr||15 Apr||25 Apr||29 Apr||10 Apr||27 May||27 May||27 May||23 May|
[Note: All dates are 2007]
It was recorded that the lifts in cores GV6(1), GV7(4) and GV8(1) had completed commissioning and were to be handed over to Arabtec (i), as to that in core GV6(1), on 3 June 2007 and (ii),as to those in cores GV7(4) and GV8(1), “today” – that is to say, on 27 May 2007. There was no longer any mention of pending electrical works or control openings.
45. Put shortly: (i) on 15 April 2007 Ultra Fuji had provided a Lift Installation Completion Schedule which showed dates for “Stage 2 – Lifts Operational” from 1 June 2007 (building GV1) to 4 July 2007 (building GV10); (ii) the Lift Progress Updates up to 27 May 2007 had continued to show the same Stage 2 dates; (iii) that position changed on 27 May 2007, but to a single Stage 2 date (4 July 2007) for all lifts: (iv) by 27 May 2007 ten lifts had been commissioned and handed over; (v) there was nothing in the Lift Progress Updates up to mid June 2007 which indicated that the Stage 2 date would not be met – indeed, as 3 June 2007, a further eighteen lifts were said to be “ready to be commissioned” or “ready to be commissioned by 9 June 2007”; (vi) by mid-June 2007 none of those eighteen lifts had been commissioned, but there was no indication on the Lift Progress Update of 13 June 2007 that the Stage 2 date (4 July 2007) would not be met; (vii) by 5 July 2007 (which is the end of the period covered by Lift Progress Updates), only ten lifts (out of the 38 lifts in the Project) had been handed over, twelve were said to be “programmed to Hand Over . . . within 4 days” or “Ready to be Commissioned and To be Handed Over . . .”; and (viii), for the first time, Ultra Fuji, acknowledged that other lifts (the remaining sixteen lifts) would not be ready for a further month.
46. Daily Lift Performance Records: As I have said, by the end of May 2007, ten lifts (one in each building) had been commissioned and handed over. On the basis of Ultra Fuji’s Lift Progress Update up to 3 June 2007 – which both parties invite me to accept as an accurate record – those were the lifts in cores GV1(1), GV2(1), GV3(1), GV4(1), GV5(1), GV6(2), GV7(4), GV8(1), GV9(3) and GV10(1) (until 18 June 2007 and thereafter GV10(2)). From 26 May 2007 Arabtec recorded the performance of those lifts in Daily Lift Performance Records. It appears from those records that the lifts broke down, or otherwise failed to perform, on the following dates (so far as material in the context of these proceedings):
47. In summary, the Daily Lift Performance Records show (i) that there was only one lift (the lift in core GV3(1)) which did not breakdown in the period from 26 May to 8 July 2007, (ii) that five of the remaining lifts broke down on more than three occasions in that period and (v) that the lift in core GV10(1) was in a state of continuous breakdown throughout the period.
48. A further indication of progress can be found in the Engineer’s Certificate as of 30 June 2007. That is summarized in the following table:
|Percentage certified||25||25||30||25||25||60 & 25||25||25||25||25|
The termination of the Sub-Contract Works
“strenuous efforts to ensure that the load placed in any lift at any one time does not exceed 700 kgs”. He wrote:
“Given the above information we are at a loss to understand what we are doing that is not ‘proper.’ We request that you explain us the usage of lifts within the load capacity that will ensure they do not regularly break down.”
There was no response to that letter.
50. On 28 June 2007 Mr Raja Ghanma had written to Mr Semaan to express his “concern about the lack of progress with the commissioning and handing-over of the lifts”. The letter went on:
“Currently, only five of the then lifts given to Arabtec (at maintenance speed) are operating. No Ultra Fuji workers have attended to the lift works for at least the past three days and have effectively gone on strike.
Arabtec has been placed in a serious and unacceptable situation.
Hence, we are forced to take the following actions effective immediately;1. No Ultra Fuji lift personnel are permitted to enter the site until further notice. Escalator personnel are excepted.2. Arabtec is making efforts to source alternative lift installation contractors to carry out the works.3. All monies due to Arabtec have been placed on hold.
Please be advised that your contract is at risk of being terminated and any extra costs to complete the works or any penalties incurred by Arabtec from the Client will be debited from your account and your future payments will be adjusted accordingly. This is for your information and action.”
That letter seems to have crossed with a letter of the same date from Mr Semaan to Mr Raja Ghanma, in which complaint was made of Arabtec’s failure to settle outstanding invoices dated 11 April 2007 and 10 June 2007. Mr Semaan accepted in his evidence that, on 28 June 2007 (and for three days before that) there had been no Ultra Fuji workmen on site. It is clear that Ultra Fuji had withdrawn its labour in response to what it saw as Arabtec’s failure to pay outstanding invoices. That view finds support in a letter of 30 June 2007 from Mr Semaan to Mr Raja Ghanma in which (by way of response to Mr Raja Ghanma’s letter of 28 June 2007) he wrote:
“. . . please note that our people left their stations due to the pending payments [that] we are reminding you for the last two months. . . .
We do not understand why you have to hold the due payments and the variation costs that we are reminding you for the last two months. This action should be initiated from your side and all the points that you have mentioned from your letter can be resolved if payments were settled on time. . . .”
51. Mr Raja Ghanma’s letter of 28 June 2008 led to a meeting with Mr Semaan on site. The outcome of that meeting was that Ultra Fuji workmen returned to the site on the following day. Mr Semaan’s evidence was to the effect that: “having got this letter I made sure the operatives got back to site – there was then some improvement”. He made immediate arrangements for technicians to fly to Dubai from China. On 4 July 2007 he wrote to Mr Garo Missirlian (by then Arabtec’s Acting Project Manager for the Gate Village Project) to say that one building per lift was then currently running. Neither that assertion, nor the assertion that there had been some improvement since 28 June 2007, is borne out by the contemporary Daily Lift Performance Records. That was pointed out to him in a letter of the following day from Mr Raja Ghanma (but signed on his behalf by Mr Hansard). He wrote:
“The actual status of the lifts is as per the attached ‘Daily Lift Performance Record’ dated 04th July, 07 complied by our Safety Engineer Mr PK Shaafi.
It shows that four of the ten lifts broke down during the day. GV10 lift remains inoperable at time of writing.
Four of the lifts i.e.GV04, 05, 06 and 07 are under observation. The floor indicator display is showing incorrect levels – this has been the warning symptom for future breakdown.
In conclusion, we have had only ten lifts operating currently from 7.30 am to 10.30 am i.e. 3 hrs. . . .”
Mr Semaan accepted in evidence that he had received that letter: he did not respond to it in writing.
52. On 9 July 2007 there was a meeting at Arabtec’s offices between Mr Raja Ghanma, Mr Missirlian and Mr Semaan. It is common ground that, at that meeting, Mr Semaan told Mr Missirlian that Ultra Fuji could fix the lifts and would do whatever was necessary to that end. Nevertheless, following that meeting, Mr Raja Ghanma and Mr Missirlian reached the conclusion that Sub-Contract should be terminated. As Mr Missirlian put it in his evidence (at paragraph 5 of his witness statement):
“We were all making requests of Ultra Fuji to provide a definitive programme when the lifts would be ready. We were given promises by Ultra Fuji at such meetings, but it was not being backed up by actions and we could not see any difference in how the Project was being approached on the ground. On the basis that we could not see any improvement being made, the decision was taken to terminate Ultra Fuji’s Subcontract in July 2007.”
53. On 11 July 2007 Mr Semaan wrote to Mr Raja Ghanma in these terms:
“We regret to inform you that our technicians were stopped at the gate for not allowing to enter the site for the commissioning of the [Gate Village] project. This type of incident had happened previously and it cause delay in completing the project.
Please note that in this situation we reserve our legal right and we will not be held responsible for any consequences what so [ever] for the delay in completing the job as well as any damages on the material inside the loft shaft due to the interference of a third party.
Further, you are kindly requested to clarify the reason behind for stopping of our technicians to complete our project.
Expect an early response.”
In a second letter of the same date Mr Semaan set out his computation of the monies which (as he said) were then due from Arabtec to Ultra Fuji. The balance claimed in that letter was AED 745,693.52 (exclusive of retention).
54. Mr Raja Ghanma replied to Mr Semaan’s letters of 11 July 2007 in a letter dated 17 July 2007:
“Further to our letter . . . date 28th June 2007, your attendance to the building site had been duly noted. However, we note that despite promises being made at this attendance, you have not delivered or attempted to complete any of your obligations under the contract such as:
1. Completion of the work in accordance with Arabtec’s construction program;
2. Conformity with the specifications stipulated in the contract.
As has been previously confirmed to you on numerous occasions, both verbally and in writing, the quality of your work is found to be extremely sub-standard. The part of the work already executed is fraught with many defects and you are found either wanting in your efforts to rectify the defects or have been found incompetent and unable to do so.
In light of the situation and in accordance with Clause 12 of our Sub-Contract Agreement dated 19th December 2005 we hereby give you formal notice that your services have been determined as of 11th July 2007 and arrangements have been made to have the works completed on your behalf.
As per the terms of the above-mentioned clause, we reserve our right to use your equipment, Constructional Plant and materials for the necessary completion of the work.
With regards to your fax dated 11th July 2007, we wish to state that in the light of the above the value of the works already executed by you will be assessed in accordance with the Engineer’s Payment Certificate and any excess payment effected to date will be recovered from you accordingly. We reserve exercise of all rights and remedies available to us under the Agreement.”
The Bureau Veritas Report
55. On 5 August 2007, without notice to Ultra Fuji, Arabtec instructed Bureau Veritas, an independent inspection agency, to carry out an inspection and evaluation of the works of installation of elevators and escalators at the Gate Village site. A visual inspection was carried out by Mr Chadi Madi between 8 and 12 August 2007; following which he prepared a detailed report of what he had seen. Mr Madi is an electrical engineer and surveyor who, at the relevant time, had had some four years experience in surveying lift installations. He gave evidence at the trial. I have no hesitation in accepting his report as an accurate record of the actual state of the lifts at the time of his inspection. His evaluation as to the state of the lifts (expressed as a percentage of the overall works to completion) may be summarized as follows:
That evaluation, as Mr Madi acknowledged, was based on his own subjective view; but it is supported by the detailed findings in his report. On the basis of that evaluation, it can be seen that, at the date when Arabtec purported to terminate the Sub-Contract, only eleven of the thirty eight lifts were more that 50% complete.
Was the letter of 17 July 2007 an effective notice of termination under clause 12 of the Agreement?
56. I have explained, earlier in this judgment, that the right to terminate the Sub-Contract by notice of termination under the provisions of clause 12 of the Agreement of 19 December 2005 was exercisable if, but only if, (i) Arabtec had already served both (a) a notice (or notices) to perform and (b) a notice of default and (ii) Ultra Fuji had failed within seven days to take effective action to remedy the failure or default identified in the notice of default. I should add, further, that the right to terminate by the service of notice of termination would not have been exercisable if (before that notice were served) Ultra Fuji had given an effective notice of cure under Article 80 of the DIFC Contract Law. It is unnecessary, on the facts in the present case, to consider what the position would have been if Ultra Fuji had sought to give notice of cure after the date of the notice of termination (17 July 2005): it is clear that there was no notice of cure after than date.
57. At paragraph 12 of its Re-amended Particulars of Claim, Arabtec relies on its letter of 28 June 2006 as the notice of default for the purposes of Clause 12 of the Agreement. On that basis, it is said (at paragraph 13 of the pleading) (i) that Ultra Fuji failed to take effective action to remedy its defaults and failures within seven days of 28 June 2007 and (ii) that Arabtec terminated the Sub-Contract by the letter of 17 July 2007. The first question, therefore, is whether, on 28 June 2007, Arabtec was in a position to serve a notice of default under clause 12 of the Agreement. If so, then a second question arises: was the letter of 28 June 2007 an effective notice of default for the purposes of that clause.
58. Arabtec was in a position to serve a notice of default under clause 12 of the Agreement if, but only if, by 28 June 2007 either (a) Ultra Fuji had failed to proceed with the Sub-Contract Works with due diligence after being required in writing by Arabtec to do so, or (b) Ultra Fuji had failed to execute the Sub-Contract Works or to perform its other obligations in accordance with the Sub-Contract after being required by Arabtec to do so, or (c) Ultra Fuji had refused or neglected to remove defective materials or make good defective work after being directed in writing by Arabtec to do so. In that context Arabtec relies on the matters pleaded at paragraph 12 of the Re-amended Particulars of Claim and (so far as relevant) the letters and matters referred to in paragraphs 11A to 11H of that pleading.
59. The matters pleaded at paragraph 12 of the Re-amended Particulars of Claim are:
“12.1 Defendant’s lack of progress with the commissioning and handing over of the lifts:
12.2 Failure of 5 out of the 10 lifts handed over by the defendant to the Claimant to operate;
12.3 Failure by the Defendant’s to attend the site in order to repair the defective lifts;
12.4 The 5 operational lifts which had been handed over by the Defendant were only operating at maintenance speed.”
Given that those are the matters which are said to constitute failure to proceed, failure to execute or refusal to make good defective work on which Arabtec relies, the letters referred to in paragraphs 11A, 11C and 11D are not relevant in this context. There is no letter referred to at paragraph 11B; and the letters referred to paragraph 11H are not letters from Arabtec. It follows that, in addressing the question whether Arabtec was in a position to serve a notice of default under clause 12 of the Agreement, it is necessary to ask whether Arabtec can rely on any of the letters referred to in paragraphs 11E to 11G as notices to perform: there are no other letters on which it could rely.
60. I have set out those letters earlier in this judgment. In the letter of 31 May 2007 (paragraph 11E) Mr Nada had pointed out that the lift in building GV10 which had been handed over by Ultra Fuji a few days earlier – that is to say, the lift which (from other evidence) can be identified as that in core GV10(1) – was “continuously under breakdown”, stated that that lift was “hereby” returned to Ultra Fuji and required Ultra Fuji to “ensure the reliability and safety of the lift before handing over again”. In the letter of 21 June 2007 (paragraph 11F) Mr Raja Ghanma had referred to the need “to have all lifts operational at all village buildings during the months of June, July, and August” – in particular to have all lifts in buildings GV4, GV5 and GV6 ready for testing and commissioning on 30 June 2007, to have all lifts in buildings GV1, GV2, GV3, GV7, GV8 and GV10 ready for test and inspection on 7 July 2007 and to have all lifts in building GV9 ready on 30 August 2007 – and required Ultra Fuji “to follow this priority sequence and handing over schedule without tolerance”. In the letter of 26 June 2007 (paragraph 11G) Mr Nada wrote to complain of repeated breakdowns in respect of the lifts in cores GV7(1) and GV10(2) and stated that those lifts were being returned “for the necessary action” – which was to include testing and certification “by a competent third party”. As I have said, I think it likely that the identification of the lift in building GV7 as that in core GV7(1) was an error: the evidence suggests that it was the lift in core GV7(4) that had been handed over. It is pertinent to have in mind that the lift in GV10(2) had been handed over (on or about 18 June 2007) in substitution for the lift in core GV10(1) – which had been returned to Ultra Fuji on or about 31 May 2007.
61. In my view Arabtec was in a position to serve a notice of default under clause 12 of the Agreement in reliance on the letters dated 31 May and 21 June 2007. I am not satisfied that it could rely, in that context, on the letter of 26 June 2007. The reasons which lead me to that conclusion are these:
(3) I should add that I take the view that the letter of 21 June 2007 could not be relied upon as a notice to perform under paragraphs (b) or (c) of clause 12 of the Agreement in the context of a notice of default given on 28 June 2007. The letter contained no direction to Ultra Fuji (within paragraph (c) of clause 12) “to remove defective materials or make good defective work”. In so far as the letter may be said to contain a requirement (within paragraph (b) of that clause) “to execute the Subcontract Works or to perform [its] other obligations in accordance with the Subcontract”, the earliest date on which lifts were to be ready for testing and inspection in accordance with that requirement (30 June 2007) had not been reached when the notice of default was sent on 28 June 2007: on a proper analysis, on 28 June 2007, there had not been a default in respect of the requirement in the letter of 21 June 2007 (notwithstanding that, plainly, it was likely that there would be a default in a few days time).
(4) The letter of 26 June 2007 contains a direction (within paragraph (c) of clause 12) “to make good defective work”. In that letter Arabtec identifies the defective work – the continuous break down of the lifts in cores GV7(1) GV10(2) – states that those lifts are being returned and requires that Ultra Fuji take “the necessary action”. That action includes testing and certification by a competent third party “after your repair”. As I have said, I think it likely that it was the lift in core GV7(4) rather than the lift in core GV7(1) that was the true subject of complaint; but, be that as it may, it is plain that on 28 June 2007 the lift in core GV10(2) remained non-operational. But I am not persuaded that, within the period of two days following the letter of 26 June 2007, Ultra Fuji had refused or neglected to make good the defect: or, so far as material, had failed to proceed with the Sub-Contract Works with due diligence (paragraph (a) of clause 12) or failed to execute the Sub-Contract Works (within paragraph (b) of that clause. The period between the letter of 26 June 2006 and the notice of default given on 28 June 2007 was of insufficient length to support a finding that there had been a neglect or failure to proceed or perform.
62. The conclusion (in answer to the first question posed) that Arabtec was in a position to serve a notice of default under clause 12 of the Agreement in reliance on the letters dated 31 May and 21 June 2007 does not lead to the further conclusion (in answer to the second question) that the letter of 28 June 2007 an effective notice of default for the purposes of that clause. It is important to have in mind that the clause provides that, in the event of a failure or default within one or other of paragraphs (a) to (c), “the Contractor may give written notice of such default or failure to the Subcontractor” [emphasis added]. The notice of default must identify a failure or default in complying with an earlier notice to perform. The point is reinforced by the words which precede the right to terminate by notice: “Thereafter should the Subcontractor not take effective action . . . to remedy such default or failure then the Contractor may . . . forthwith determine the Subcontractor’s employment . . .” [emphasis added].
63. In the circumstances which I have described there were, on 28 June 2007, two respects in which Ultra Fuji had failed or neglected to comply with earlier notices to perform; (i) the neglect in making good the defect which led to the lift in core GV10(1) being in continuous break down (as directed in the letter of 31 May 2007) and (ii) the failure to proceed with due diligence in following the hand over schedule (as required in the letter of 21 June 2007). The letter of 28 June 2007 does not refer to either of those matters in express terms. Nevertheless, I am satisfied that it does sufficiently identify the failure or default in complying with the direction and requirement in the earlier notices to perform. In particular:
Further – although without referring in terms to clause 12 of the Agreement – the letter of 28 June 2007 does draw to the attention of Ultra Fuji “that your contract is at risk of being terminated”.
64. Subject to two further matters, therefore, I would hold that the letter of 28 June 2007 was an effective notice of default for the purposes of clause 12 of the Agreement: the relevant default being (i) the neglect in making good the defective work in respect of the lift in core GV10(1) and (ii) the failure to proceed with due diligence towards meeting the handing over schedule specified in Arabtec’s letter of 21 June 2007. The further matters arise from the provisions of the DIFC Contract Law: in particular, the provisions in Article 78 – which, as I have said, provides that a party may not rely on the non-performance of the other party “to the extent that such non-performance was caused by the first party’s act or omission or by another event as to which the first party bears the risk” – and the provisions in Article 80(3) – which provides that, upon effective notice of cure (under Article 80(1)), those rights of the aggrieved party that are inconsistent with the non performing party’s right to cure of any non-performance are suspended.
65. I am satisfied that, in the circumstances of the present case, neither the provisions of Article 78 nor the provisions of Article 80(3) precluded the service by Arabtec of a notice of default on 28 June 2007 in respect of the neglect and failure which I identified. I am not persuaded that Ultra Fuji’s neglect in making good the defective work in respect of the lift in core GV10(1) or its failure to proceed with due diligence towards meeting the handing over schedule specified in Arabtec’s letter of 21 June 2007 (during, in each case, the relevant period prior to 28 June 2007) were caused by any act or omission on the part of Arabtec or by any other event in respect of which Arabtec bore the risk. In particular, I am not persuaded that neglect in making good the defective work in respect of the lift in core GV10(1) was caused either by misuse of that lift (if and so far as that is alleged by Ultra Fuji – the letter of 26 June 2007 alleging misuse relates not to that lift but to the lift in core GV10(2) or by a lack of power. In the latter context it is to be noted that other lifts were working: at least from time to time. I am satisfied that the failure to proceed with due diligence towards meeting the handing over schedule in Arabtec’s letter of 21 June 2007 – and, in particular, the withdrawal of labour from the site – was caused by Ultra Fuji’s concern (which, as I have said, was ill-founded) that it was not being paid monies due to it. In that latter context, I find a passage in a letter dated 13 June 2007 from Mr Semaan to Mr Hansard of significance. The letter requests a temporary power supply to cores GV4(2) and (3) and GV5(2), (3) and (4); but continues with this observation:
“Also, concerning our due payments, we request you to arrange it as soon as possible as delays are affecting the delivery of our works and our staff.
. . .
. . . Please arrange all the payments to avoid any delays”.
The provisions of Article 80(3) are not in point: there was nothing between 31 May and 28 June 2007 on which Ultra Fuji sought to rely (or could have relied) as an effective notice of cure for the purposes of Article 80.
66. For those reasons I hold that the letter of 28 June 2007 was an effective notice of default for the purposes of clause 12 of the Agreement. The next question is whether Ultra Fuji took effective action within seven days of that letter to remedy the neglect or failure which were the subject of the notice of default given by the letter of 28 June 2007. In addressing that question it is necessary to have in mind (i) that, on 28 June 2007 Mr Semaan took steps to arrange for technicians to travel from China, and (ii) that, notwithstanding the statement in the letter of 28 June 2007 that “No Ultra Fuji lift personnel are permitted to enter the site until further notice”, Ultra Fuji workmen were back on site on the following day (29 June 2007).
67. As I have said, the relevant default in respect of which the default notice of 28 June 2007 could be served – and so the relevant default which Ultra Fuji was required to remedy in the context of the right to terminate under clause 12 of the Agreement -was (i) the neglect in making good the defective work in respect of the lift in core GV10(1) and (ii) the failure to proceed with due diligence towards meeting the handing over schedule specified in Arabtec’s letter of 21 June 2007. Although it could, I think, be said that Ultra Fuji took effective action within seven days of the default notice to proceed with diligence towards meeting the handing over schedule, I find it impossible to hold that Ultra Fuji took effective action to remedy the neglect in making good the defective work in respect of the lift in core GV10(1). There was no evidence that anything was done in relation to that lift in the week after 28 June 2007; and no evidence that whatever needed to be done in relation to that lift could only be done by technicians from China. I hold, therefore, that Ultra Fuji did not take effective action within seven days of the default notice to remedy the neglect or failure which were the subject of that notice. It follows that, from 5 July 2007, it was open to Arabtec to serve a written notice of termination.
68. Arabtec did not choose to exercise that contractual right of termination until 17 July 2007: and, when it did so, it purported to terminate the Subcontract “as of 11th July 2007”. In my view, the letter of 17 July 2007 was not an effective notice of termination under the provisions of clause 12 of the Agreement. The reason can be stated shortly. Clause 12 does not provide for retrospective termination: that is to say, for termination with effect from a date prior to the giving of the written notice. Upon the failure of the Sub-Contractor to take effective action within seven days of the notice of default, “the Contractor may, by [giving] written notice to the Subcontractor forthwith determine the Subcontractor’s employment . . .”. The adverb “forthwith” qualifies the verb “determine”: it does not qualify the implied verbal ablative “giving”. The effect of the provision is that the notice of termination can not be given until seven days from the receipt by the Sub-Contractor of the notice of default; but that, when given, the Sub-Contract can be terminated without any further interval of time. But the Sub-Contract can not be terminated under clause 12 on (or with effect from) a date before the notice of termination is given. So, in the circumstances of the present case, the Sub-Contract could not be terminated on 11 July 2007 by the letter of 17 July 2007: and the letter of 17 July 2007 can not be treated as a notice of termination on that date, because, plainly, that was not Arabtec’s intention. Arabtec was treating the Sub-Contract as having been terminated on 11 July 2007, when Ultra Fuji was excluded from the site.
Was the Subcontract terminated by notice under Articles 86 and 87 of the DIFC Contract Law?
70. It is important to keep in mind that Ultra Fuji’s obligation, under the Subcontract, was to complete the Sub-Contract Works by 31 December 2007. There had been no extension of that completion date under clause 6(b) of the Agreement: indeed Ultra Fuji had made no request for an extension under clause 10(e). There can be no doubt that, on 9 July 2007, Ultra Fuji was in breach of its obligation to complete the Sub-Contract Works within the contractual Period for Completion. The failure to complete constituted “non-performance” within Article 77 of the DIFC Contract Law. The question, in the context of Article 86 of that Law, is whether, by 9 July 2007, the failure to complete amounted to “fundamental non-performance”: so giving rise to the right to terminate the Sub-Contract.
71. In addressing that question regard must be had, in particular, to the matters set out in Article 86(2) of the DIFC Contract Law. Those matters include: “whether . . . (d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance”. The following matters (to each of which I have already referred earlier in this judgment) seem to me to be of relevance in this context:
72. The position, therefore, at 9 July 2007, was that Ultra Fuji had commissioned only ten of the thirty eight lifts which should have been commissioned (under the terms of the Sub-Contract) some six months earlier; that the majority of those ten lifts were not operating satisfactorily; that seven lifts which (on 5 July 2007) had been programmed for hand over within 4 days had not been handed over; and that, in the light of Ultra Fuji’s past performance, there was no reason to think that the five lifts which were said to be ready to be commissioned and handed over were likely to be handed over in the near future. Further, Ultra Fuji had acknowledged (only recently and for the first time) that the remaining sixteen lifts would not be ready for a further month.
73. Taking those matters into account – and setting them in the context of the history of delay and defective work which appears from the analysis of events which I have set out in this judgment – I am in no doubt that, by 9 July 2007, Ultra Fuji’s failure to complete the Sub-Contract Works amounted to a fundamental non-performance. Arabtec was entitled to take the view that there was no real prospect that the Sub-Contract Works would be completed to the satisfaction of DIFC and its Engineer.
74. I am satisfied that Mr Semaan’s assurance, given to Mr Missirlian at the meeting on 9 July 2007, that Ultra Fuji could fix the lifts and would do whatever was necessary to that end, cannot be treated as an effective notice of cure for the purposes of Article 80(3) of the DIFC Contract Law; and that (if Arabtec would otherwise have had the right to terminate the Subcontract for fundamental non-performance) that assurance cannot have the effect of suspending that right. I take that view for two reasons:
75. It necessary, however, to ask whether, on 9 July 2007, Arabtec was precluded from relying on Ultra Fuji’s failure to complete the Sub-Contract Works by Article 78 of the DIFC Contract Law. As I have said, that article precludes a party from relying on the non-performance of the other party to the extent that such non-performance was caused by the first party’s act or omission. Subject to consideration of that question (in the following paragraphs of this judgment) I would hold that, on 9 July 2007, Arabtec was entitled to give notice under Articles 86 and 87 of the DIFC Contract Law terminating the Sub-Contract.
76. Article 13 of the DIFC Contract Law requires that notice, where required, may be given “by any means appropriate to the circumstances”. There is no requirement that a notice of termination for fundamental non-performance must be given in writing. Justice Sir Anthony Colman so held in Itmar Capital v 8 Investments Inc and onother (Case CFI 8/2007). But, as he put it at paragraph 86 of his judgment in that case, handed down in this Court in November 2008:
“Although notice of termination for fundamental non-performance need not, in my judgment, be given in writing, for by Art.9 a contract need not be concluded or evidence in writing, the substance of the words used must be such as to be clear and unequivocal. If a reasonable recipient of the communication could be left in doubt whether the innocent party was indeed terminating the contract, that would have been ineffective as a notice of termination”.
77. The decision to terminate the Sub-Contract was taken on 9 July 2007 (following the meeting on that day between Mr Raja Ghanma, Mr Missirlian and Mr Semaan). Mr Hansard’s evidence was that Mr Semaan was informed of that decision by text message on the evening of 9 July 2007, or in the morning of the following day. I have no reason to doubt Mr Hansard’s evidence that Mr Semaan was informed of the decision to terminate the Subcontract by text message on the evening of 9 July 2007 or (as I think more likely) on the morning of the following day. Given that Arabtec were intending to exclude Ultra Fuji from the site, that would have been an obvious message to send. Mr Semaan accepted, in the course of re-examination, that, on 10 July 2007, he was informed orally and by text message that the contract was being terminated.
78. There is no direct evidence as to the terms of the text message or of any oral conversation. Ultra Fuji technicians were denied entry to the Gate Village site when they attended for work on the morning of 11 July 2007. Mr Semaan wrote to Mr Raja Ghanma in the terms set out earlier in this judgment. The letter invited Mr Raja Ghanma “to clarify the reason behind for stopping of our technicians to complete our project”. That clarification was provided in the letter of 17 July 2007; by which Ultra Fuji was given “formal notice that your services have been terminated as of 11th July 2007”. I have considered whether, in the light of Mr Semaan’s request (in his letter of 11 July 2007) for clarification of Arabtec’s reasons for stopping the Ultra Fuji technicians from completing the Sub-Contract Works, I should take the view that he did not, then, appreciate that Arabtec was terminating the Sub-Contract. I am satisfied that would not be the correct view. Mr Semaan did not suggest, in the course of his evidence, that (following the text message) he was in any doubt that the Sub-Contract was being terminated. The better view, I think, is that the letter of 11 July 2007 was written in the hope of retrieving the position; or, at least, of providing the basis for an argument that Arabtec had not been entitled to terminate the Sub-Contract.
79. Subject, therefore, to the ability of Ultra Fuji to rely on Article 78 of the DIFC Contract Law, I am satisfied that the Subcontract was properly terminated by notice on the grounds of fundamental non-performance.
Can Ultra Fuji rely on Article 78 of the DIFC Contract Law?
80. At paragraph 35 of its Defence Ultra Fuji pleads reliance on Article 78 of the DIFC Contract Law. It is said that:
“35.1 . . . the installation work, as noted in the letter dated 1 October 2005 under the heading “Works not included in our scope of works”, could only commence when the Project site was properly prepared to allow such installation. The programme was varied during the course of the Subcontract Works due to failures of the Claimant and/or other subcontractors retained by the Claimant in relation to work on the Project, as such failures were detailed herein, particularly in paragraph 25 of this Defence. The installation work formed a substantial element of the Subcontract Works and these failures prevented and/or delayed the Defendant from proceeding with this work.”
81. The failures alleged in paragraph 25 of the Defence are these:
In the following paragraphs I address those matters in turn.
82. Failing to construct lift shafts with pockets: The Sub-Contract Works specified the installation of machine room-less traction lifts. The traction motors were seated on steel beams which spanned each lift shaft. The ends of the each beam fitted into (and were supported by) pockets formed in the walls of the shaft. The position of the pockets was shown on shop drawings. It was common ground – and, if it were not, I would so hold – that it was Arabtec’s responsibility to form the pockets in the correct positions. Arabtec chose to do that by chipping out pockets in the walls of each shaft after the shaft had been constructed: rather than by pre-forming the pockets in the concrete (if, indeed, that were possible or practicable).
83. The process of chipping out was time consuming. In order to carry out that process it was necessary to mark out the pocket in its correct position on the wall of the shaft. There was dispute at the trial as to which of Arabtec and Ultra Fuji were responsible, under the Sub-Contract, for marking out the pockets. If it were necessary to resolve that dispute, I would hold that marking out the pockets was Arabtec’s responsibility: on the ground that it was incidental to the task of forming the pockets. But it is unnecessary to resolve that point: it was common ground that the pockets were marked out by Ultra Fuji workmen. Some of the pockets, when chipped out by Arabtec, proved to be in the wrong position. There was a dispute whether that was because the position had been wrongly marked (by Ultra Fuji); or because Arabtec had failed to chip out the pockets in the position as (correctly) marked. If it were necessary to resolve that dispute, I would hold that the position of the pockets was wrongly marked: it seems to me inherently improbable that Arabtec’s workmen would choose to chip out a pocket in a position which was not marked rather than in a position which was marked. Be that as it may, the process of forming the pockets clearly did take longer than had been anticipated; and was the cause of some delay. In my view each party contributed to that delay.
84. It is unnecessary to reach a conclusion as to the extent to which that delay was caused by the acts or omissions of Arabtec. It is impossible to take the view that the delay in forming pockets in the walls of the lift cores (whichever party was responsible for that delay) was the cause of Ultra Fuji’s failure to complete the Sub-Contract Works by 9 July 2007. The position may be summarized as follows:
It is pertinent to keep in mind that Ultra Fuji’s own installation schedule, in its letter of 1 October 2005 (one of the Subcontract documents), provided for a maximum installation period of 140 days (20 weeks) for the lifts. Given the progress that was actually made in forming the pockets (albeit later than anticipated), there should have been no difficulty in completing installation of the lifts by (at the latest) 20 weeks from the end of January – say, by the end of June 2007. Confirmation that Ultra Fuji, itself, did not take that view, prior to these proceedings, that the delay in forming the pockets would lead to a delay in completion beyond the end of June 2007(or thereabouts) can be found in its agreement to “Planned Finishing Dates” at the meeting on 7 February 2007 and in its Lift Installation Completion Schedule of 14 April 2007: it was projected, in that schedule, that the lifts in all buildings would be operational on dates between 1 June and 4 July 2007.
85. Requesting the re-location of the controller panel: The shop drawings which formed part of the specification of the Sub-Contract Works showed the controller panel in respect of each lift core located in a recess on and external wall of that core. At a meeting on 19 October 2006 the DIFC Engineer expressed the view that, for structural reasons, that was not acceptable: the lift control panel would need to be moved. The proposals for re-location (with drawings) were put forward in a letter from Hopkins to Mr Raja Ghanma dated 25 October 2006: it was accepted in that letter that the each lift control panel should not be located more than 5 metres from each lift motor. That letter was sent on by Mr Raja Ghanma to Mr Semaan. In a subsequent letter, dated 2 November 2006, Mr Semaan was asked to confirm approval of the proposals. On 4 November 2006 he replied in these terms:
“. . . we hereby confirm the locations of the control panel as marked by the consultant.
For instances that there will be required additional wirings, we will inform you accordingly for the extra cost and a separate quotation shall be provided to you.”
86. On 10 January 2007 Mr Semaan informed Arabtec that the travelling cables had become redundant in consequence of the re-location of the control panels; and that new travelling cables would need to be procured from China. On 17 January 2007 Mr Raja Ghanma wrote to express surprise and disappointment at that information. He said this:
“At no time during the various discussions, held over the past 8 weeks regarding the re-positioning of the control cabinets, were we ever advised that the travelling cable needed to be adjusted.
What you had advised us is that only the cable between the control cabinet and the lift motor needed adjustment and that this adjustment could be made using locally available materials.
. . .”
87. On 6 February 2007 Mr Semaan informed Mr Raja Ghanma that there would be a variation cost in respect of additional wiring in the total sum of AED 1,187,500: that is to say, of an amount equal to some 13% of the original price for the Subcontract Works. The need for additional wiring was said to be attributable to:
“the extra wiring of the 38 Nos of Elevators from Machine to the new location of the control panel due to the modification from the original approved drawing as follows:-
a) Additional Travelling Cable
b) Extra GI Trunking
c) Encoder with direct cable to be imported from Factory (From Machine to control panel)
. . .”
Arabtec were asked to “confirm the variation cost which will enable us to arrange the additional material from our Factory and proceed”. That request prompted a meeting, on 7 February 2007 between Arabtec, Ultra Fuji and the project managers of DIFC and APP International. On 8 February 2007 Mr Semaan wrote to Mr Hanssard, referring to that meeting. The letter went on:
“. . . concerning the problem with the encoder cable, please be informed that the distance of the encoder cable from the motor to the control panel is 10 meters. As per the instruction of our main factory, we cannot modify the location of the encoder cable because it will affect the reliability of the lifts.”
88. Mr Semaan’s evidence at trial was that Arabtec did not accept the variation cost: with the consequence that the control panels were not moved in accordance with the proposal which had been made in October 2006. The control panels remained in their original location; save that they were installed on the surface of the core wall, rather than flush with the surface (in a recess). This avoided the structural problem that DIFC’s Engineer had identified. His evidence was confirmed in this respect by Mr George Layous, who told the Court: “When Arabtec heard how much it was going to cost, they said ‘forget about it'”.
89. I am satisfied that, by the middle of February 2007 (and, probably, at the meeting on 8 February 2007), it was known to Ultra Fuji that the proposal to move the control panels which had been made by the DIFC Engineer in October 2006 was not proceeding. I find support for that view in a letter of 28 March 2007 from Mr Semaan to Mr Hansard. The letter of 8 February 2007 had sought confirmation of a variation cost (AED 94,000) in respect of additional guiderails and steel rope: made necessary, it was said, by the increased height of the buildings. In his letter of 28 March 2007 Mr Semaan referred in that earlier letter (and a reminder of 21 February 2007). He wrote: “. . . till now, we have not receive any feedback regarding your confirmation on the Variation Cost for the Guiderails and Steel Ropes that were already delivered to the site”. He asked for “your immediate consideration on this matter”. He made no reference to the variation cost for the additional wiring in respect of the control panels. Had that issue still been live, it seems to me inconceivable that it would not have been mentioned in the letter of 28 March 2007. I reject Mr Semaan’s evidence that the final position of the control panels was not agreed until early May 2007.
90. I accept that there was a period, between October 2006 and February 2007, during which it was uncertain whether the control panels were to be moved from their original position as shown in the shop drawings. Mr Layous told the Court that he did not know anything of the proposal to re-locate the control panels until January 2007. I think it likely that, in November 2006, Mr Semaan (without having consulted Mr Layous) led Arabtec and DIFC to think that the control panels could be moved without any significant cost; and that matters proceeded on that (false) basis until 10 January 2007. Be that as it may, it is impossible to hold that the uncertainty as to the position of the control panels over the period October 2006 to February 2007 was the cause of Ultra Fuji’s failure to complete the Subcontract works by 9 July 2007.
91. Failures relating to the controller panel opening inside lift shafts: As I have said, the controller panels were to be installed on the external wall of each lift core: that is to say, outside the lift shaft. Mr Layous told the Court that there was a further change in May 2007 which required the controller panels to be moved to the inside of the shafts: the effect of which was that “we had to remove the extended trunking, rewire the elevator controller and machinery, install new encoders, rehang the elevator cars and re-programme their operating systems”. He said that that additional work took approximately two months.
92. I find it impossible to reconcile that evidence with the evidence of Ultra Fuji’s own Lift Progress Updates; and I reject it. In the Lift Progress Update up to 28 February 2007 there appears (for the first time) a note “Control Panel Access opened on 27.02.2007” in respect of eight cores (GV(1), (2) and (3), GV4(1) and (2) and GV6(1), (2) and (3)). Neither that note, nor any other note relating to control panel access openings, appears again in the Lift Progress Updates until the Update up to 23 May 2007. In that Update there is a note “Control Openings Pending” in respect of two cores (GV5(5) and(6)). Neither that note, nor any other note relating to control panel access openings, appears again in the Lift Progress Updates. There is nothing in the Lift Progress Updates to suggest that whatever change of mind or failure there may have been on the part of Arabtec in respect of control panel openings, that change of mind or failure was the cause of Ultra Fuji’s failure to complete the Sub-Contract Works by 9 July 2007.
93. Failing to provide for an emergency escape opening in each of the lift shafts: Mr Layous told the Court that Arabtec had resisted the provision of emergency escape hatches on the grounds that that would require further work in chipping out the openings, which would cause delays. But Ultra Fuji insisted that escape hatches be provided and Arabtec agreed to do that work. Mr Layous’ evidence was that chipping out began on or about 3 January 2007: it took approximately seven days work in each shaft. I accept that that work caused some delay. But there was no evidence that that delay was the cause of Ultra Fuji’s failure to complete the Sub-Contract Works by 9 July 2007.
94. Failing to supply and install closed circuit television and camera equipment: Mr Semaan explained to the Court that, although the specification of the Sub-Contract Works did not require Ultra Fuji to provide co-axial cable for CC-TV cameras, Ultra Fuji had agreed to do so. He said that Arabtec had failed to install the cable. Be that as it may, there was no evidence that any failure on the part of Arabtec to supply and install closed circuit television and camera cabling or equipment was the cause of Ultra Fuji’s failure to complete the Sub-Contract Works by 9 July 2007.
95. Misuse and overloading of the lifts: The specification of the Sub-Contract Works required that two lifts in each building should be tested and commissioned (in advance of the hand over) for use as construction lifts. Testing of lifts in buildings GV3 and GV5 took place at the beginning of May 2007. There were breakdowns. On 5 May 2007 Mr Semaan wrote to Mr Hansard to complain of overloading; which, he asserted, was the cause of those breakdowns. In response Mr Nada pointed out, in a letter dated 7 May 2007, that the overload trip system should prevent the use of the lifts when overloaded; and that “on enquiry with your Engineer and Technician, it was clearly understood that the overload trip system was not properly set in these lifts . . .”. Mr Semaan did not contradict that response.
96. In the event one lift in each building was handed over by 4 June 2007. It is reasonable to assume that those lifts were used as construction lifts; and (in so far as that is in dispute) I so hold. The lift in core GV10(1) was taken out of service on or before that date; and was in continuous breakdown thereafter. A complaint by Ultra Fuji that lifts were being misused was made in a letter from Mr Semaan dated 26 June 2007: the complaint in that letter was confined to the lifts in cores GV7(1) and GV10(2). [As I have said, I think it likely that the reference to core GV7(1) is in error: the relevant core in building GV7 was core GV7(4)]. That complaint was rebutted by Arabtec in its letter of 30 June 2007 (to which I have already referred). There was no general complaint of misuse; and no other complaint of misuse of any individual lift. In particular, there was no complaint of misuse in response to Arabtec’s letter of 28 June 2007. If it were necessary to do so, I would find as a fact (preferring the evidence of Mr Hansard to that of Ultra Fuji’s witnesses on this point) that there was no general misuse of the lifts by Arabtec or its other Sub-Contractors. But it is unnecessary to make that finding. There is no evidence that whatever misuse may have taken place was the cause of Ultra Fuji’s failure to complete the Subcontract works by 9 July 2007.
97. Repeatedly interfering and disrupting the defendant’s performance of the Subcontract Works: It is unclear what (if anything) this allegation adds to the other matters specified.
98. Failing to provide power: It is not in dispute that it was Arabtec’s responsibility to provide electric power to the lifts. Nor is it in dispute that, for the purpose of commissioning and testing the lifts, temporary power to each building was provided from a generator. In a letter dated 13 June 2007 Mr Semaan asked for a temporary power supply for cores GV4(2) and (3) and GV5(2), (3) and (4). On 17 June 2007 Mr Raja Ghanma wrote:
“Please be advised that a supply of electricity (actually a supply greater than needed) is available to you for the testing and operation of all lifts and escalators in the Gate Village project.
Your site Engineers comments regarding inadequate power supply are invalid.”
That response was not challenged. More pertinently, perhaps, lack of power to commission and test the lifts was not raised as a response to Arabtec’s letters of 21 and 28 June 2008. Had it been the absence of temporary power which was the cause of the lack of progress of which Arabtec was complaining in those letters, I find it inconceivable that Ultra Fuji would not have said so. I am not satisfied that lack of a sufficient power supply was the cause of Ultra Fuji’s failure to complete the Subcontract works by 9 July 2007.
99. Failing to pay monies due under the Sub-Contract: For the reasons which I shall explain in later paragraphs of this judgment, I take the view that the allegation that Arabtec failed to pay Ultra Fuji monies due to it under the Sub-Contract is misconceived. Put shortly, the payment provisions in the Sub-Contract required Arabtec to make a progress payment to Ultra Fuji after it had, itself, received payment in respect of the relevant work from DIFC. There was no evidence that Arabtec failed to pay Ultra Fuji for work in respect of which it had, itself, been paid.
100. For those reasons I am satisfied that Ultra Fuji cannot rely on Article 78 of the DIFC Contract Law. It follows that I hold that the Sub-Contract was properly terminated by notice on the grounds of fundamental non-performance.
Arabtec’s monetary claim
102. Reprocurement costs: These comprise two following items: (i) re-procurement of replacement subcontractor (AED 100,500); and (ii) inspection and rectification of latent defective work (AED 297,400).
103. The first of those items represents the administrative costs of retendering the Sub-Contract Works. I accept, in principle, that those costs are recoverable by way of damages for the breach of contract which led to the termination of the Sub-Contract. As I have said, the replacement subcontractor selected was IEEC. The price under the replacement subcontract was AED 2,010,000. The amount claimed is 5% of that price. Mr Jeffrey Lindsey, P.E, a civil engineer with over thirty three years experience in the construction industry, gave his expert opinion that 5% of the replacement subcontract price was a reasonable estimate of the actual cost of retendering. I accept that evidence. I award damages in the amount of AED 100,500 under this head.
104. The second of those items is the aggregate of (i) AED 167,400, being the amount of the deduction from the original Sub-Contract price (AED 9 million) pursuant to the variation order issued on 19 November 2006 to which I referred in paragraph 5 of this judgment, (ii) AED 80,000, being the replacement cost of two control panels found to be defective by IEEC on inspection of the works and (iii) AED 50,000, being Bureau Veritas’ fees for carrying out their inspection in August 2007, following the decision to terminate the contract.
105. It is said that Arabtec is entitled to recover the deduction of AED 167,400 by way of damages as it was not deducted from Ultra Fuji’s original Bills of Quantities (BOQ) values in the initial calculations for the cost of the works at termination: paragraph 41 of Mr Lindsey’s report. But, as it seems to me, if the deduction of AED 167,400 pursuant to the variation order were not deducted in the initial calculations for the cost of the works at termination, the correct approach is to adjust the amount due to (or from) Ultra Fuji under the payment provisions of the Sub-Contract, rather that to award that sum by way of damages for breach of contract.
106. The evidence to support the claim to damages in respect of two defective control panels is said to be found in a spreadsheet prepared by IEEC on 8 August 2007 and exhibited to Mr Lindsey’s report. The defective panels are, I think, those in cores GV5(1) and GV9(2): those being the panels which were to be replaced before IEEC started work on 1 October 2007. That evidence was not challenged and I accept it. Accordingly I award damages in the amount of AED 80,000 under this head.
107. I am not persuaded that the third element comprised in the claim in respect of reprocurement costs – The Bureau Veritas Inspection Fee (AED 50,000) – is properly recoverable as damages for the breach of contract which led to the termination of the Sub-Contract. In the circumstances that the Bureau Veritas inspection was carried out without notice to Ultra Fuji, it cannot be said to be a step which the Sub-Contract required for the purpose of ascertaining the amount properly payable to Ultra Fuji on termination. Nor was there any evidence that it was a necessary element in the reprocurement process – in the sense that IEEC relied upon the Bureau Veritas Report in submitting its own tender. It seems to me that the Bureau Veritas inspection was carried out for the purpose of obtaining a third party record of the actual state of the Sub-Contract Works which could be deployed by Arabtec in future negotiation or litigation. It is recoverable (if at all) as a litigation cost: not as damages for breach of contract.
108. Overpayment to Ultra Fuji: The amount claimed by way of refund (AED 2,442,924.78) is the difference between the amount of the payments actually made by Arabtec to Ultra Fuji (AED 7,435,827.93) (as to which there is no dispute) and the amount (AED 4,992,903.15) which – based on the Engineer’s certification as at 30 September 2007 (before IEEC started work) and Ultra Fuji’s original BOQ values – Arabtec contends ought to have been paid to Ultra Fuji under the payment terms in the Sub-Contract.
109. The computation of the amount (AED 4,992,903.15) which Arabtec contends ought to have been paid to Ultra Fuji appears at Table 6.3 in paragraph 33 of Mr Lindsey’s report. The amount is the sum of (i) AED 3,224,388.14 (being 75% of the certified value of the materials on site, as provided in paragraph 60.1(c) of the Main Contract, read with the Appendix to Tender) and (ii) AED 1,768,515.02 (being the sum of the progress payments certified by the Engineer in respect of each of the 38 lifts and the two escalators). [Note: there is a discrepancy of AED 0.01 in the computation, but nothing turns on that]. The amount of each progress payment is calculated by multiplying Ultra Fuji’s BOQ value in respect of the individual lift (shown at Table 3.1 in paragraph 12 of Mr Lindsey’s report) by the percentage of installation certified by the Engineer. The percentage of installation certified in respect of each lift was 20%: the percentage of installation certified in respect of the escalators was 15%. The methodology was explained both by Mr Lindsey and by Ms Rincy Babu, a Senior Quantity Surveyor employed by Arabtec. Subject to the need for adjustment to reflect the deduction pursuant to the variation order of 19 November 2006 – and, as I shall explain, to take account of an addition in respect of guide rails and steel rope – I am satisfied that both the methodology and the computation are correct.
110. The need for adjustment arises, first, in the circumstances that Ultra Fuji’s BOQ values are based on the original Sub-Contract price of AED 9 million: as Mr Lindsey’s Table 3.1 shows. By 11 July 2007 the original Sub-Contract price had been reduced to AED 8,832,600 by the variation order of 19 November 2006. That reduction ought to be reflected in a corresponding reduction in Ultra Fuji’s BOQ. A reduction in Ultra Fuji’s BOQ would, itself lead to a corresponding reduction in the progress payments. The appropriate reduction, as it seems to me, is to 98.14%: that being the proportion which the reduced Sub-Contract price bears to the original Sub-Contract price.
111. I have considered whether there is a further need for adjustment, to take account of the variation cost (AED 94,000) sought by Ultra Fuji in its letter of 8 February 2007 as an additional amount attributable to the provision of guide rails and steel rope not included in the original BOQ. It is not clear from the evidence whether a variation order in that amount was ever issued – it was still being sought by Ultra Fuji on 28 March 2007 – but it is not, I think, in dispute that Ultra Fuji was entitled to that additional amount. On that basis, the reduced Sub-Contract price (AED 8,832, 600) should be increased by AED 94,000: that is to say, to an adjusted figure of AED 8,832,694. The reduction in the BOQ values should be adjusted accordingly by 0.104%.
112. Applying those adjustments, the sum of the progress payments shown in Mr Lindsey’s Table 6.3 should be reduced from AED 1,768,515 to AED 1,735,639. The effect of that adjustment is to reduce the aggregate amount shown in that Table from AED 4,992,903 to AED 4,960,027; and to increase the amount of the overpayment claim to AED 2,475,800. The increase in the amount of the overpayment claim is, of course, more than offset by the disallowance of the damages claim in respect of the variation cost; even after netting off the further variation cost attributable to the guide rails and steel rope.
113. Liquidated damages for delay: The effect of adding in a variation cost of AED 94,000 to the adjusted Sub-Contract price – to take account of Ultra Fuji’s claim in respect of the guide rails and steel rope – is to raise the cap on liquidated damages by 10% of that sum: that is to say, from AED 883,260 to AED 892,660. In my view, Ultra Fuji has no answer to that claim for liquidated damages. For whatever reason it did not seek an extension of time beyond 31 December 2006 for completion of the Sub-Contract Works during the subsistence of the Sub-Contract; and it has not done so in these proceedings.
114. I am satisfied that Arabtec has made out its monetary claims in the following amounts:
|Administration costs of re-tendering the Sub-Contract Works||AED 100,500|
|Replacement of two defective control panels||AED 80,000|
|Overpayment under the Sub-Contract||AED 2,475,800|
|Liquidated damages for delay||AED 892,660|
115. I am satisfied, also, that Arabtec is entitled to the indemnity which it seeks: that is to say, an indemnity in respect of any liability which it may incur under the Main Contract by reason of Ultra Fuji’s breach of the Sub-Contract.
Ultra Fuji’s counterclaim
117. As I have said, earlier in this judgment, Ultra Fuji’s claim to payment on unpaid invoices is a claim to the difference between (i) the aggregate of the amounts invoiced by Ultra Fuji (together, AED 8,159,314.38), the retention monies (AED 896,146.04), and an adjustment described as “Balance to Invoice after final handing over” (AED 38,539.58) and (ii) payments actually received under the Sub-Contract (AED 7,435,827.93). The amounts invoiced include (i) three amounts in respect of the delivery of elevators and escalators (together, AED 6,075,000), (ii) five progress payments (together, AED 1,990,314.37) and (iii) a variation cost in respect of additional guide rails and steel rope (AED 94,000).
118. The payment terms set out in the third schedule to the Agreement of 19 December 2005 required an advance payment of AED 900,000 (10% of the Sub-Contract price) and payment of AED 5,400,000 (60% of the Sub-Contract price) under a letter of credit in favour of the factory in China. It is clear from the evidence of Ms Babu – and from Table 6.2 in paragraph 31 of Mr Lindsey’s report – that those payments were made. The aggregate of the amounts paid under the letter of credit was AED 6,435,853.45. Ultra Fuji’s claim is, in effect, for progress payments, retention monies and the variation cost.
119. The progress payments sought are the subject of invoices dated, respectively 22 November 2006 and 21 February, 27 March, 10 April and 9 June 2007. As I have sought to explain, Ultra Fuji’s right to progress payments did not arise on the submission of invoices: it arose following receipt by Arabtec from DIFC of progress payments certified by the Engineer under the Main Contract. It is clear from Ms Babu’s evidence that she issued Sub-Contract Interim Certificates to enable progress payments to be made in accordance with the Sub-Contract terms; and that those payments were made to Ultra Fuji under those interim certificates. The last of those interim certificates was issued on 3 April 2007. Ultra Fuji’s concern – as expressed in Mr Semaan’s letters of 9 and 28 June 2007 – was that no payments had been made against the invoices of 10 April and 9 June 2007. That concern was ill founded: payments against those invoices could not become due – under the payment terms in the Sub-Contract – until the Engineer had issued a relevant certificate under the Main Contract. The relevant certificate was issued as on 30 June 2007.
120. The position under the 30 June 2007 certificate (as well as that under the 30 September 2007 certificate) is shown in Table 6.3 of Mr Lindsey’s report. The 30 June 2007 certificate valued the progress payments under the Sub-Contract in the amount of AED 2,367,559.80. The difference between that figure and the comparable figure in the 30 September 2007 certificate (AED 1,768,515.02) is AED 559,044. That difference is explained by the Engineer’s decision, in his September 2007 certificate, to reduce the percentage of installation complete in respect of each lift. In most cases that was a reduction from 25% complete to 20% complete. There was also a reduction in figure for material on site.
121. Ultra Fuji might, perhaps, have sought to advance a claim based on the 30 June 2007 certificate; but it has not done so. That makes it unnecessary to decide – and, in any event, there is no material before the Court which would enable it to decide – whether whatever progress payments Arabtec itself received from DIFC following the 30 June 2007 certificate included any amount in respect of the Sub-Contract Works. In that context it is necessary to keep in mind the provision, in clause 11(b) of and the third schedule to the Agreement of 19 December 2005, that:
“Payments shall be made by the Contractor within 7 (seven) days after receiving any payment under the Main Contract which includes a sum in respect of the Sub-Contract Works. . . .”
Given that Arabtec had sought to terminate the Sub-Contract on 11 July 2007, it is not at all self-evident that any progress payment which Arabtec did receive following (and based on) the 30 June 2007 certificate did include any amount in respect of the Sub-Contract Works. But, as I have said, given the claim actually advanced by Ultra Fuji, that is not a matter which it is either necessary (or possible) to decide.
123. The claim to retention monies (AED 896,146.04 – not AED 396,146.04, as shown in the particulars of counterclaim) is misconceived. The retention monies represent a deduction of 10% from the gross amount of each invoiced sum. They are to be released – under the payment terms in the third schedule to the Agreement of 19 December 2007 – “on issuance of certificate of practical completion against bank guarantee for equivalent amount”. No certificate of practical completion has been issued. Ultra Fuji has not sought to contend that the retention monies can be set off against the claim for liquidated damages.
124. I dismiss the claim in respect of tools and equipment said to have been left on site when Ultra Fuji’s workmen were excluded on 11 July 2007. There was no evidence as to what was left on site; or as to the value of what was left. The claim was based on the book value of tools originally issued by Ultra Fuji “for the DIFC Project”. It is impossible to say which (if any) of those tools were still in use in July 2007; and no witness sought to do so.
126. I should, perhaps, add that the Agreement of 19 December 2005 contains no express provision – comparable to that in clause 63.2 of the Main Contract – for certification by the Engineer (following premature termination of the contract) of the amount which had, at the time of termination, “been reasonably earned by or would reasonably accrue to the Contractor in respect of work actually done by him under the Contract” and of the value of any unused or partially used materials. I express no view as to the method by which a final balance should be struck between Arabtec and Ultra Fuji in respect of the work done by Ultra Fuji under the Sub-Contract. That has not been the subject of argument in the present proceedings. This judgment is directed only to the claims and counterclaims which the parties have thought fit to make in these proceedings.
Justice Sir John Chadwick
Dated: 11 February 2009
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